Exhibit 99.1
McDermott Reports Third Quarter 2005
Results; Net Income of $58.5 Million, $0.80 Per Diluted Share
NEW ORLEANS--(BUSINESS WIRE)--Nov. 8, 2005--McDermott
International, Inc. (NYSE:MDR) ("McDermott" or the "Company") today
reported net income of $58.5 million, or $0.80 per diluted share, for
the 2005 third quarter, compared to net income of $18.3 million, or
$0.27 per diluted share, for the corresponding period in 2004.
Weighted average common shares outstanding on a fully diluted basis
were approximately 73.3 million and 68.4 million for September 30,
2005 and September 30, 2004, respectively.
Revenues in the third quarter of 2005 were $503.5 million,
compared to $450.2 million in the corresponding period in 2004,
reflecting increases at both consolidated segments. Operating income
was $74.1 million in the 2005 third quarter, compared to $39.8 million
in the 2004 third quarter. Operating income for the third quarter of
2005 included approximately $0.2 million of corporate qualified
pension expense, compared to $14.1 million of corporate qualified
pension expense in the third quarter of 2004. The reduction in
corporate qualified pension expense reflects the previously announced
spin-off of The Babcock & Wilcox Company ("B&W") pension plan and
related expense, which was completed on January 31, 2005. In addition,
beginning January 1, 2005, McDermott now allocates to its Government
Operations segment the pension expense related to that segment.
"McDermott produced solid results from its two consolidated
businesses during the third quarter of 2005, and we continue to expect
that B&W will be reconsolidated in our results during early 2006,"
said Bruce W. Wilkinson, Chairman of the Board and Chief Executive
Officer of McDermott. "This was an active quarter for the Company,
including the activities associated with the currently proposed B&W
settlement and the signing of approximately $1.0 billion of new awards
at J. Ray."
As a result of the August 29, 2005 announcement, and the
subsequent filing, of a currently proposed plan of reorganization for
B&W's Chapter 11 settlement, beginning in the third quarter of 2005,
McDermott has suspended recording the quarterly non-cash adjustment
associated with B&W's previously negotiated settlement, as the
previous plan is no longer considered probable. In the third quarter
of 2004, McDermott recorded an after-tax revaluation expense of $1.1
million associated with the revaluation expense of the previously
negotiated settlement.
RESULTS OF OPERATIONS
2005 Third Quarter Compared to 2004 Third Quarter
Marine Construction Services Segment ("J. Ray")
Revenues in the Marine Construction Services segment were $360.6
million in the 2005 third quarter, compared to $325.6 million for the
same period a year ago. The year-over-year increase in revenues
resulted primarily from increased project activity in worldwide
marine, the Middle East and Caspian regions, partially offset by
decreased fabrication activity on projects in Morgan City, Louisiana.
Segment income for the 2005 third quarter was $63.7 million,
compared to $28.6 million in the 2004 third quarter. Major items
contributing to operating income in the 2005 third quarter were
international marine and fabrication projects. In addition, J. Ray
recorded a net benefit to operating income of approximately $36.4
million, primarily related to contract change orders and close-outs of
substantially completed projects. The 2004 third quarter included a
net benefit of $20.7 million, in aggregate, from favorable contract
cost adjustments on certain loss projects, gains on asset sales and
other items.
At September 30, 2005, J. Ray's backlog was $1.7 billion, compared
to backlog of $1.2 billion and $1.4 billion at December 31, 2004 and
September 30, 2004, respectively. During the third quarter of 2005, J.
Ray signed contracts for new awards with projected revenue totaling
approximately $1.0 billion.
Government Operations Segment ("BWXT")
Revenues in the Government Operations segment increased $18.4
million, to $143.0 million, in the 2005 third quarter, compared to
$124.6 million for the same period a year ago. The increase was
primarily due to higher volumes in the manufacture of nuclear
components for certain U.S. government programs and increased revenues
from commercial nuclear environmental services, as well as other
commercial work, including increased uranium downblending activity.
Segment income decreased $9.5 million, to $19.3 million, compared
to the 2004 third quarter, primarily due to the corporate allocation
to BWXT of $5.3 million related to qualified pension expense in the
third quarter of 2005, which in 2004 and prior periods was recorded in
the corporate segment. In addition, increased expenses related to
facility oversight and stock-based compensation were recorded in the
2005 third quarter, partially offset by higher volumes in the
manufacture of nuclear components and from commercial nuclear
environmental services.
At September 30, 2005, BWXT's backlog was $1.5 billion, compared
to backlog of $1.7 billion and $1.5 billion at December 31, 2004 and
September 30, 2004, respectively.
Corporate
Unallocated corporate expenses were $9.3 million in the 2005 third
quarter, a decrease of $8.3 million compared to the 2004 third
quarter. The decrease was primarily due to a reduction in qualified
corporate pension expense during the third quarter of 2005 as a result
of the BWXT pension allocation and the spin-off of B&W's pension
assets and liabilities into a new B&W-sponsored pension plan.
Other Income and Expense
The Company's other expense for the third quarter of 2005 was $5.4
million, compared to $9.1 million in the third quarter of 2004, which
included net interest expense of $3.8 million and $7.6 million in the
respective quarters.
As mentioned above, during the 2005 third quarter, McDermott
suspended the revaluation of certain components related to the
previous settlement cost of the B&W Chapter 11 proceedings. McDermott
expects that the currently proposed settlement will be recorded in
McDermott's financial statements on the effective date of the
currently proposed plan of reorganization. See McDermott's Form 10-Q
for the period ending September 30, 2005 for additional information
regarding the accounting for the currently proposed B&W settlement.
THE BABCOCK & WILCOX COMPANY
McDermott wrote off its remaining investment in B&W of $224.7
million during the second quarter of 2002 and has not consolidated B&W
with the Company's financial results since B&W's Chapter 11 bankruptcy
filing in February 2000. In accordance with the currently proposed
settlement related to B&W's Chapter 11 proceedings, the Company
currently expects that B&W will be reconsolidated in early 2006.
During the third quarter of 2005 on a deconsolidated basis, B&W's
revenues were $373.1 million, an increase of $94.1 million compared to
the third quarter of 2004. In the 2005 third quarter, B&W recorded an
estimated net expense of $468.4 million related to the currently
proposed Chapter 11 settlement announced on August 29, 2005. As a
result of this expense, B&W's operating loss for the third quarter of
2005, prepared in accordance with generally accepted accounting
principals ("GAAP"), was $441.6 million. Excluding the net expense
related to the Chapter 11 settlement from B&W's GAAP operating income,
B&W's non-GAAP operating income for the third quarter of 2005 was
$26.7 million(1). During the third quarter of 2005, B&W recorded
approximately $6.8 million of pension expense, which in prior years
resided in the corporate segment. In the third quarter of 2004, B&W's
operating income was $20.6 million.
At September 30, 2005, B&W's backlog was $1.6 billion, compared to
backlog of $1.5 billion and $1.3 billion at December 31, 2004 and
September 30, 2004, respectively.
(1) Reconciliation of B&W non-GAAP operating income: GAAP
Operating Loss of $441.6 million, plus the currently proposed B&W
Chapter 11 settlement expense of $468.4 million, for a result of $26.7
million.
OTHER INFORMATION
About the Company
McDermott International, Inc. is a leading worldwide energy
services company. The Company's subsidiaries provide engineering,
fabrication, installation, procurement, research, manufacturing,
environmental systems, project management and facility management
services to a variety of customers in the energy and power industries,
including the U.S. Department of Energy.
In accordance with the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995, McDermott cautions that
statements in this press release, which are forward-looking and
provide other than historical information, involve risks and
uncertainties that may impact the Company's actual results of
operations. These forward-looking statements include statements
relating to backlog, the proposed settlement of the B&W Chapter 11
proceedings and the accounting treatment expected to be applied to
that settlement. Although we believe that the expectations reflected
in those forward-looking statements are reasonable, we can give no
assurance that those expectations will prove to have been correct.
Those statements are made by using various underlying assumptions and
are subject to numerous uncertainties and risks, including, but not
limited to, risks that revenues in backlog may not be realized in the
amounts described as a result of changes in the contracts and other
various factors, and the B&W Chapter 11 settlement may not be
finalized on the terms we expect or within the time frame we
anticipate. If one or more of these risks materialize, or if
underlying assumptions prove incorrect, actual results may vary
materially from those expected. For a more complete discussion of
these and other risk factors, please see McDermott's annual report for
the year ended December 31, 2004 and its 2005 quarterly reports filed
with the Securities and Exchange Commission.
McDermott has included in this press release B&W's operating
income/(loss) for the three-months ended September 30, 2005 on both a
GAAP and a non-GAAP basis. The non-GAAP measure excludes an expense
related to B&W's currently proposed Chapter 11 proceedings settlement
which management considers to be outside B&W's customary business.
McDermott believes this non-GAAP measure provides meaningful insight
into B&W's operational performance and will use this measure to
evaluate B&W's operations for budget planning and performance goals. A
reconciliation of the difference between these measures is presented
in the footnote within the B&W section above.
Conference Call to Discuss 2005 Third Quarter Earnings Release
Date: Wednesday, November 9, 2005, at 10:00 a.m. EST
(9:00 a.m. CST)
Live Webcast: Investor Relations section of Website at
www.mcdermott.com
Replay: Available for two weeks in the investor relations
section of www.mcdermott.com
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
(Unaudited)
(In thousands, except per share amounts)
Revenues $503,494 $450,187 $1,457,745 $1,449,338
- ---------------------------------------------------------------------
Costs and Expenses:
Cost of operations 384,768 384,710 1,164,912 1,277,082
Selling, general
and administrative
expenses 57,563 49,659 156,038 141,730
Gains on asset
disposals and
impairments - net (3,961) (15,844) (6,501) (18,797)
- ---------------------------------------------------------------------
438,370 418,525 1,314,449 1,400,015
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Equity in Income of
Investees 8,953 8,113 26,222 24,053
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Operating Income 74,077 39,775 169,518 73,376
- ---------------------------------------------------------------------
Other Income (Expense):
Interest income 5,402 1,522 13,810 3,342
Interest expense (9,165) (9,091) (27,784) (25,775)
Increase in
estimated cost of
The Babcock &
Wilcox Company
bankruptcy
settlement - (284) (5,887) (2,256)
Other - net (1,651) (1,217) 3,647 898
- ---------------------------------------------------------------------
(5,414) (9,070) (16,214) (23,791)
- ---------------------------------------------------------------------
Income before Provision
for (Benefit from)
Income Taxes 68,663 30,705 153,304 49,585
Provision for (Benefit
from) Income Taxes 10,163 12,450 (8,551) 30,412
- ---------------------------------------------------------------------
Net Income $58,500 $18,255 $161,855 $19,173
- ---------------------------------------------------------------------
Earnings per Common
Share:
Basic $0.85 $0.28 $2.39 $0.29
Diluted $0.80 $0.27 $2.25 $0.28
- ---------------------------------------------------------------------
Weighted Average
Shares:
Basic 68,656,927 65,854,008 67,677,823 65,550,353
Diluted 73,282,470 68,437,520 72,084,803 67,829,638
- ---------------------------------------------------------------------
McDERMOTT INTERNATIONAL, INC.
SELECTED SEGMENT INFORMATION
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
----------- ----------- ----------- -----------
(Unaudited)
(In thousands)
REVENUES
Marine
Construction
Services $360,599 $325,604 $1,002,430 $1,050,746
Government
Operations 142,953 124,586 455,486 398,605
Power Generation
Systems 0 0 0 0
Adjustments and
Eliminations (58) (3) (171) (13)
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TOTAL $503,494 $450,187 $1,457,745 $1,449,338
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SEGMENT INCOME (LOSS)
Marine
Construction
Services $63,749 $28,618 $123,729 $47,129
Government
Operations 19,259 28,723 73,036 80,340
Power Generation
Systems 382 40 767 1,811
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Corporate (9,313) (17,606) (28,014) (55,904)
----------------------------------------------------------------
TOTAL $74,077 $39,775 $169,518 $73,376
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EQUITY IN INCOME FROM
INVESTEES (1)
Marine
Construction
Services $2,473 $67 $2,204 $1,976
Government
Operations 5,869 7,785 22,584 21,212
Power Generation
Systems 611 261 1,434 865
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TOTAL $8,953 $8,113 $26,222 $24,053
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DEPRECIATION &
AMORTIZATION
EXPENSE (1)
Marine
Construction
Services $6,575 $5,353 $20,309 $17,100
Government
Operations 3,111 3,086 9,368 9,122
Power Generation
Systems 0 0 0 0
Corporate 391 1,156 1,440 2,799
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TOTAL $10,077 $9,595 $31,117 $29,021
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CAPITAL EXPENDITURES
Marine
Construction
Services $6,110 $3,875 $20,960 $7,745
Government
Operations 4,278 5,311 12,055 9,550
Power Generation
Systems 0 0 0 0
Corporate 0 281 155 283
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TOTAL $10,388 $9,467 $33,170 $17,578
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BACKLOG
Marine
Construction
Services $1,697,028 $1,421,701 $1,697,028 $1,421,701
Government
Operations 1,497,649 1,501,788 1,497,649 1,501,788
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TOTAL $3,194,677 $2,923,489 $3,194,677 $2,923,489
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(1) Included in Segment Income (Loss) above.
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2005 2004
------------------- -------------------
(Unaudited)
(In thousands)
Current Assets:
Cash and cash equivalents $374,087 $259,319
Restricted cash and cash
equivalents 144,813 111,455
Investments 59,767 -
Accounts receivable -
trade, net 246,129 226,731
Accounts receivable from
The Babcock & Wilcox
Company 5,884 6,121
Accounts and notes
receivable -
unconsolidated affiliates 55,559 29,330
Accounts receivable - other 27,035 71,522
Contracts in progress 72,399 72,355
Deferred income taxes 18,510 9,813
Other current assets 10,600 13,277
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Total Current Assets 1,014,783 799,923
- ---------------------------------------------------------------------
Restricted Cash and Cash
Equivalents - 66,498
- ---------------------------------------------------------------------
Property, Plant and Equipment 1,102,917 1,087,314
Less accumulated
depreciation 796,667 780,225
- ---------------------------------------------------------------------
Net Property, Plant and
Equipment 306,250 307,089
- ---------------------------------------------------------------------
Investments 84,546 41,884
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Goodwill 12,926 12,926
- ---------------------------------------------------------------------
Other Assets 208,647 158,612
- ---------------------------------------------------------------------
TOTAL $1,627,152 $1,386,932
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LIABILITIES AND STOCKHOLDERS' DEFICIT
September 30, December 31,
2005 2004
------ ------
(Unaudited)
(In thousands)
Current Liabilities:
Notes payable and current maturities of
long-term debt $4,250 $12,009
Accounts payable 102,525 114,235
Accounts payable to The Babcock &
Wilcox Company 48,593 55,180
Accrued employee benefits 73,484 79,362
Accrued liabilities - other 159,693 163,649
Accrued contract cost 66,240 81,591
Advance billings on contracts 284,214 217,053
U.S. and foreign income taxes payable 32,182 18,612
- ----------------------------------------------------------------------
Total Current Liabilities 771,181 741,691
- ----------------------------------------------------------------------
Long-Term Debt 260,267 268,011
- ----------------------------------------------------------------------
Accumulated Postretirement Benefit
Obligation 27,014 26,315
- ----------------------------------------------------------------------
Self-Insurance 62,044 61,715
- ----------------------------------------------------------------------
Pension Liability 208,482 328,852
- ----------------------------------------------------------------------
Accrued Cost of The Babcock & Wilcox
Company Bankruptcy Settlement 117,990 112,103
- ----------------------------------------------------------------------
Deferred Liability Associated with The
Babcock & Wilcox Company Pension Plan
Spin-Off (See Note 8) 117,079 -
- ----------------------------------------------------------------------
Other Liabilities 116,559 109,688
- ----------------------------------------------------------------------
Commitments and Contingencies.
Stockholders' Deficit:
Common stock, par value $1.00 per
share, authorized 150,000,000 shares;
issued 72,640,473 at September 30,
2005 and 69,560,726 at December 31,
2004 72,640 69,561
Capital in excess of par value 1,163,204 1,122,055
Accumulated deficit (899,053) (1,060,908)
Treasury stock at cost, 2,099,796
shares at September 30, 2005 and
2,341,902 shares at December 31, 2004 (57,866) (64,625)
Accumulated other comprehensive loss (332,389) (327,526)
- ----------------------------------------------------------------------
Total Stockholders' Deficit (53,464) (261,443)
- ----------------------------------------------------------------------
TOTAL $1,627,152 $1,386,932
- ----------------------------------------------------------------------
McDERMOTT INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2005 2004
------ ------
(Unaudited)
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $161,855 $19,173
- ----------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Depreciation and amortization 31,117 29,021
Income of investees, less dividends (12,426) (7,702)
Gain on asset disposals and impairments -
net (6,501) (18,797)
Benefit from deferred taxes (49,825) (12,702)
Increase in estimated cost of The Babcock
& Wilcox Company bankruptcy settlement 5,887 2,256
Other 6,844 3,375
Changes in assets and liabilities, net of
effects of acquisitions and divestitures:
Accounts receivable (7,926) 35,546
Net contracts in progress and advance
billings 67,025 (1,903)
Accounts payable (18,283) (29,053)
Accrued and other current liabilities (18,081) (23,105)
Income taxes 13,570 31,281
Other, net 6,865 (28,055)
- ----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES 180,121 (665)
- ----------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Decrease in restricted cash and cash
equivalents 33,140 12,329
Purchases of property, plant and equipment (33,170) (17,578)
Purchases of available-for-sale securities (314,114) (66,730)
Sales of available-for-sale securities 2,450 5,565
Maturities of available-for-sale securities 209,966 61,973
Proceeds from asset disposals 15,363 74,206
Other (4,435) 1
- ----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (90,800) 69,766
- ----------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (12,734) -
Decrease in short-term borrowing - (36,750)
Issuance of common stock 33,792 484
Debt issuance costs (949) (3,400)
Other 5,382 (953)
- ----------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 25,491 (40,619)
- ----------------------------------------------------------------------
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (44) 6
NET INCREASE IN CASH AND CASH EQUIVALENTS 114,768 28,488
- ----------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 259,319 174,790
CASH AND CASH EQUIVALENTS AT END OF PERIOD $374,087 $203,278
- ----------------------------------------------------------------------
CONTACT: McDermott International, Inc.
Jay Roueche, 281-870-5462
jroueche@mcdermott.com